Can I Be Sent to Jail for Failure to File Taxes?
Obviously it’s a crime to cheat on your taxes or to willfully or even accidentally fail to file your taxes. That being said, in the past few years less than 2,000 have actually been convicted of a tax crime although over 4,000 are annually investigated. This number is roughly 0.0023% of all taxpayers which is a ridiculously small percentage of the population when you consider that the IRS believes at least 15% of all taxpayers are not complying with tax laws. A criminal investigation will generally begin with a special IRS agent conducting interviews with the taxpayer’s friends, family, professional advisers and anyone else with potentially incriminating information.
The IRS also believes that a full three-quarters of tax cheating is done by middle-income individuals with the remainder of the cheating being done by businesses. Businesses which deal largely in cash, self-employed handypersons and doctors are considered the worst overall tax cheaters in America. As far as under-reporting of income goes, the IRS considers car dealers, salespersons, doctors, lawyers, accountants and hairdressers to be the worst offenders. Although such high profile tax cases as the Wesley Snipes case make headlines and strike fear in the heart of everyone who has ever fudged on their taxes, the statistical likelihood of being convicted of a tax crime is practically zero.
How People Cheat on Their Taxes
The vast majority of cheating is a result of deliberate underreporting of actual income. This is known as tax evasion which is the most commonly charged tax crime prosecuted by the IRS. The IRS has started giving a second look to deductions claimed by business owners—a crime which ranked second to tax evasion. Claiming the first-time homebuyer tax credit comes in on the list of ways people cheat on their taxes as does working a job under the table while collecting unemployment benefits. Lying about income to qualify for government benefits and underreporting tips round out the list of the most common ways Americans cheat on their taxes. For those who make less than $200,000 per year the IRS audits approximately one in 99, however for those over that limit the number rises significantly.
What if You Get Caught for a Tax Crime?
If you are one of the unlucky taxpayers who gets tagged for an audit and the auditor catches you in a blatant tax lie you could be hit with a penalty, or the auditor has the option of referring your case to the Criminal Investigation Division of the IRS, although this is a relatively rare occurrence. Keep in mind that an IRS auditor will not tell you he is referring your case for criminal fraud prosecution but might stop your audit in midstream. Tax auditors are trained to spot any type of tax fraud including tax evasion.
The obvious examples of tax fraud would include using a false social security number, keeping two sets of books or claiming dependents who don’t exist—all of which could definitely get you in serious hot water with the IRS and potentially place you in that small category who are referred to the CID. If you have simply made inadvertent mistakes on your taxes, auditors are generally pretty understanding and fully aware of the complexity of the tax code. However, even if deliberate fraud is not an issue, you can still be slapped with significant fines. Phony deductions and exemptions can also be punished through high fines—in some cases you could pay a 75% civil penalty as opposed to an approximate 20% penalty for simply making an honest mistake.
Hiring Legal Counsel
Combatting tax fraud is never a do-it-yourself project meaning at the first sign of trouble you should immediately consult a tax attorney, or, if you have bigger IRS problems, a criminal defense attorney. Never try to lie your way out of fraud charges—in fact, keep your mouth closed until you have had the opportunity to consult with an attorney. While you probably won’t land in jail, take charges of tax evasion or tax fraud very seriously and contact an attorney who will take it just as seriously, offering professional help to get you back on track.